TY - JOUR
T1 - The empirical determinants of credit default swap spreads
T2 - A quantile regression approach
AU - Pires, Pedro
AU - Pereira, João Pedro
AU - Martins, Luís Filipe
PY - 2015/6/1
Y1 - 2015/6/1
N2 - We study the empirical determinants of Credit Default Swap (CDS) spreads through quantile regressions. In addition to traditional variables, such as implied volatility, put skew, historical stock return, leverage, profitability, and ratings, the results indicate that CDS premiums are strongly determined by CDS illiquidity costs, measured by absolute bid-ask spreads. The quantile regression approach reveals that high-risk firms are more sensitive to changes in the explanatory variables that low-risk firms. Furthermore, the goodness-of-fit of the model increases with CDS premiums, which is consistent with the credit spread puzzle.
AB - We study the empirical determinants of Credit Default Swap (CDS) spreads through quantile regressions. In addition to traditional variables, such as implied volatility, put skew, historical stock return, leverage, profitability, and ratings, the results indicate that CDS premiums are strongly determined by CDS illiquidity costs, measured by absolute bid-ask spreads. The quantile regression approach reveals that high-risk firms are more sensitive to changes in the explanatory variables that low-risk firms. Furthermore, the goodness-of-fit of the model increases with CDS premiums, which is consistent with the credit spread puzzle.
KW - Credit default swap
KW - Credit risk
KW - Liquidity
KW - Quantile regression
UR - http://www.scopus.com/inward/record.url?scp=84930045852&partnerID=8YFLogxK
U2 - 10.1111/j.1468-036X.2013.12029.x
DO - 10.1111/j.1468-036X.2013.12029.x
M3 - Article
AN - SCOPUS:84930045852
SN - 1354-7798
VL - 21
SP - 556
EP - 589
JO - European Financial Management
JF - European Financial Management
IS - 3
ER -